U.S. V. American Tobacco Company

U.S. v. American Tobacco Company, 221 US 106 (1911)

The United States v. American Tobacco Company is a case that the Supreme Court addressed a firm’s attempt to monopolize. This case was addressed shortly after the Court’s Standard Oil monopolization decision. The Court referenced Section 2 of the Sherman Act to determine their power in these cases, decided by Chief Justice White.

Beginning in 1890, there were five tobacco companies that accounted for 95% of the total cigarette production in the U.S. These five firms merged to form the American Tobacco Company. This significant growth allowed the large cigarette manufacturer to expand to many other tobacco products, such as snuff and cigar production. From the moment of creation, there was already a monopoly in place. By 1906, the American Tobacco Company was producing 95% of all chewing tobacco as well. They reached such a large market share of a variety of products by acquiring nearly all producers necessary for the tobacco’s production. The American Tobacco Company initiated price wars and acquired bankrupt competitors to drive other tobacco manufacturers out of the industry. Another business strategy of the American Tobacco Company was acquiring rival firms and then closing them down.

Under Section 2 of the Sherman Act, the Court found the American Tobacco Company to be monopolistic for their massive market share, as well as their abusive business practices. An implication of the Sherman Act is that there has to be a bad monopoly present before there can be any punishment. The Court viewed no competition present in the tobacco industry as a negative impact on society. The Court felt that the tobacco industry would be more profitable with competition, and broke up the company into several smaller corporations.